The run on Northern Rock a decade ago was a consequence of bad banking. Disgraced chief executive Adam Applegarth and his team were ignorant of the principles which guided sound banking for generations. They borrowed short on the money markets and lent long.

The traditional relationship between income and the size of mortgages was ignored and they came up with the crazy 125 per cent deal.

When customers failed to meet even the Rock’s loose criteria, details were passed to the sub-prime lending unit at Lehman Brothers.

Given all of this one can almost understand the reluctance of then Bank of England governor Lord King to bail out a badly-run lender and customers who had no idea of the risks they were taking.

A decade later there are real questions as to whether the lessons have been learned. Enforcement may have been improved with prudential regulation returned to the Bank of England, but do banks have sufficient capital? This is particularly relevant given the return of irresponsible lending.

As Royal Bank of Scotland’s finance chief Ewen Stevenson noted in New York this week, half of the customers with zero rate credit cards are ignorant of the penal rates they will incur when they come off the ‘teaser’ deals.

Drivers have were lured last year into buying a record number of 8.2m new vehicles by personal contract plans. But many purchasers will be ignorant of the annual percentage rate of interest and penalties which can occur at the end of the contract which can wipe out the original equity.

Share this article

Share

Meanwhile, JP Morgan estimates that the market for complex financial securities, at the core of the crisis of a decade ago, has grown 160 per cent in the past three years. Here in Britain some £30billion of such loans have been bundled up and sold on.

There is also evidence that finance is not reaching where it is most needed. In spite of Help To Buy, 54 per cent of housebuilders report that the biggest constraint on new home construction is ‘lack of finance’.

The idea that the system has been fixed and so the brakes can be taken off the banks is sheer foolishness.

If the authorities really wanted to make the banks safer they would require them to hold a much larger capital cushion – perhaps as much as 20 per cent – and exclude funny money from the calculations. Suppressing the animal spirits creates its own risks.

But ten years after the failure of the Rock the lessons of indiscriminate lending have not been learned.

Darkening Sky

James Murdoch will be none too pleased by the latest setback for 21st Century Fox’s £11.5billion bid for the 61 per cent of Sky that the company does not already own.

Culture and Media Secretary Karen Bradley has, in effect, overruled regulator Ofcom and is preparing to refer the deal to the Competition & Markets Authority (CMA) on grounds of ‘media standards’.

The CMA has already been tasked to tackle the deal on competition grounds.

The likely referral comes after a sustained campaign by former Labour leader Ed Miliband and Lib Dem leader Vince Cable to stop the deal in its tracks.

They argue that Fox is not a fit owner of Sky given allegations of sexual harassment and perceived political bias. There must be a real chance now that James Murdoch, as chief executive of Fox, may decide that the hassle of dealing with Britain’s political pygmies has become too much and pulls the offer.